Brinkmanship in the Trade Arena : U.S. tariff threat against the EC could touch off a transatlantic war of commerce

The nation is teetering on the brink of a transatlantic trade war that could wipe out a six-year-long effort to create new international trading rules. A collapse of world trade talks could send a faltering global economy into the skids by hurting international trade. A completed agreement, on the other hand, could eventually boost world trade by $200 billion a year.

Thursday the United States took unilateral action, slapping punitive tariffs on French, German and Italian white wines as well as wheat gluten and rapeseed oil. That won’t make a major difference to most American consumers, but an offended European Community has threatened to fire back with its own tariffs against selected U.S. goods. Such tit for tat could go on and on, with destructive consequences.

The long-brewing dispute between the United States and the EC could exact a big price. Fed up with the EC’s refusal to reduce government subsidies to oil-seed producers that give them an unfair advantage in competing with American producers, the United States imposed $300 million in punitive tariffs. The order will take effect in 30 days unless the EC agrees to limit the subsidies.

The Bush Administration’s brinkmanship reflects frustration and disappointment that it will in all likelihood be unable to deliver a completed world trade agreement by the time it leaves Washington early next year. U.S. Trade Representative Carla A. Hills, while insisting that the tariff action is not an opening salvo in a trade war, is gambling that the 30-day window before the levy takes effect will be enough to bring the EC back to the negotiating table in the world trade talks. The discussions are under the auspices of the General Agreement on Tariffs and Trade (GATT).

The oil-seed issue is supposed to be separate from the GATT negotiations, but the two have been increasingly linked in recent months as U.S. negotiators have tried to break a deadlock between the United States and the EC on farm subsidies. The U.S. tariff action came after negotiators failed to agree in the latest round of three-day talks in Chicago. A neutral GATT panel has twice found that the EC farm subsidies, which have cut into U.S. oil-seed exports by about $1 billion a year, violate current trade rules.

If the U.S. tariff action torpedoes the GATT negotiations, it will have worldwide repercussions and will sully the Bush Administration’s otherwise commendable record on trade. A preferable course of action would be to allow the GATT talks to continue until Bill Clinton is inaugurated as President. A little restraint now, accompanied by a retreat to the negotiating table, would better serve the world trading community.